Creating reserve funds vs operating expenses

[OhBeWan]

I want to ask how people account for things on their operating fund statement. This has nothing to do with IRS rules. This has to do with communicating to the parishioners in a clear way. I want to pose a few situations and ask if you set up a separate fund (S), use a liability account (L) or run it through operations (O). OK?
1) Donations received in memory of someone. Those donations were to be used to restore a historic part of the church. Is it S, L or O?
2) We are setting aside a fixed amount from our operating fund for future major building repairs-roof, parking lot resurfacing, or some other major item. In this case, I am referring to the fixed amount for that year. Is it just moved from fund balance to S or L or is it shown as an expense of operating fund (O)?
3) Major building repair equal to 10% of annual expenses. Board decided to pay for it with unallocated funds (Fund Balance). Would you show the expense on the operating statement and show money coming in from fund balance or not show at all?
4) Church budgets money for flowers. This expense is on the operating fund. In addition, people give for memorial flowers at certain special times. Those donations go into a special fund and the expense for those special times comes out of the fund. Any excess or deficit goes into/out of the fund. Would you handle the special time (Christmas and Easter) donations and expense through S, L or O?

This may be too many items, but I am just trying to see how people use liabilities, fund balance and operating statements. A general response on how you deal with these issues would be fine. I do have a thorough knowledge of FASB 116 and 117 and understand how GAAP accounting would/should work.

[NeilZ]

I want to ask how people account for things on their operating fund statement. This has nothing to do with IRS rules.

FWIW .. the IRS rules are mainly concerned with proper records of income, and proper identification of contributions as deductible or not.

This has to do with communicating to the parishioners in a clear way. I want to pose a few situations and ask if you set up a separate fund (S), use a liability account (L) or run it through operations (O). OK?
1) Donations received in memory of someone. Those donations were to be used to restore a historic part of the church. Is it S, L or O?

Operations (unless you have a separate Building Accounting Fund) ... this would be a Donor Restricted Fund this is a Temp-Restricted fund, from which you would RELEASE funds as necessary

2) We are setting aside a fixed amount from our operating fund for future major building repairs-roof, parking lot resurfacing, or some other major item. In this case, I am referring to the fixed amount for that year. Is it just moved from fund balance to S or L or is it shown as an expense of operating fund (O)?

This is when I'd have a separate Accounting Fund for Building. You can use the same checking account, but this keeps the funds totally separate from the Operations Income & Expenses. This actually provides a better visibility as you would create a transaction that moves the funds from the Operations to Building.

However, if you want to keep it under Operations, again this is something that I would create a Temp Restricted Fund, which would have a separate Fund Balance/Net Assets account (3000- series), you would move from Unrestricted Net Assets/Fund Balance to the Temp Restricted Net Assets/Fund Balance. The Balance Sheet would show the amount in the restricted fund after the move.

3) Major building repair equal to 10% of annual expenses. Board decided to pay for it with unallocated funds (Fund Balance). Would you show the expense on the operating statement and show money coming in from fund balance or not show at all?

Unallocated funds?? Do you mean unbudgeted income or funds that were excess in previous years? I'm assuming that these are funds over and above normal expenses? You keep talking 'fund balance' and I'm not sure you mean the Unrestricted Net Assets/Fund Balance or something else.

In either case, you can't show that funds are coming from the unrestricted net assets/fund balance on the I&E report. It reflects the current Fiscal Year income and expenses which come out of that fund balance account. Any expense transaction that occurs needs to show on the I&E. If the funds were in a operations Temp Restricted Fund Balance, you would show that the funds were released from that fund balance account.

FWIW ... some churchs will move their end-of-year excess income into a Temp Restricted Fund Balance/Net Assets so they can then use the funds and have it show in the I&E as a release.

4) Church budgets money for flowers. This expense is on the operating fund. In addition, people give for memorial flowers at certain special times. Those donations go into a special fund and the expense for those special times comes out of the fund. Any excess or deficit goes into/out of the fund. Would you handle the special time (Christmas and Easter) donations and expense through S, L or O?

This is usually a good area for a liability account, as you would pay for the flowers out of this account with funds that came in for Easter lilies or Christmas poinsettias. Any cost over and above what came in, would be made up out of the budgeted flower expense.

This may be too many items, but I am just trying to see how people use liabilities, fund balance and operating statements. A general response on how you deal with these issues would be fine. I do have a thorough knowledge of FASB 116 and 117 and understand how GAAP accounting would/should work.

FWIW ... Powerchurch does not do GAAP, you can modify reports to reflect GAAP accounting, but Fund Balance accounting is somewhat different than what GAAP expects.

A good article about this can be found here: https://www.churchcpa.net/to-gaap-or-not-to-gaap/